Nvidia Is Trading at a Once in a Lifetime Discount

Nvidia's GPU stronghold sets it apart from other semiconductor stocks

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Jul 03, 2022
Summary
  • Nvidia owns 78% of the GPU space, meaning that it's supported with secular growth.
  • Planned CPU market penetration could set Nvidia apart from every other semiconductor stock.
  • Relative valuation metrics indicate that Nvidia is undervalued on a normalized basis.
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The semiconductor investor base seems shaken after Micron (

MU, Financial) downgraded its earnings outlook. After Micron's outlook was released, even its peers took a beating; for instance, Dell (DELL, Financial) fell 7%, which was even more than Micron's 3.5% decline.

Many investors are fixated on the fact that most semiconductor stocks will suffer a near-term drawdown. However, they're not all one and the same. I believe Nvidia (

NVDA, Financial) could separate itself from the pack moving forward; here's why.

Business Verticals

Nvidia has a stronghold over the hypergrowth part of the semiconductor space. The company owns 78% of the GPU (graphics processing unit) market share. According to Orbis Research, the "GPU as a service" market is forecasted to proliferate at a compound annual growth rate of 31.5% until 2025.

Although the GPU market is nearly 10 times more minor than the CPU (central processing unit) market, it's growing at more than four times the pace. In addition, Nvidia plans on penetrating the CPU market with its ARM architecture chip codenamed "Grace." Thus, there's little argument against Nvidia's growth potential.

I expect Nvidia to leverage its stance in the artificial neural network (ANN) market in the coming years. Neural networks are time-series and image recognition algorithms that are applied across various industries. The ANN industry is set to expand at a CAGR of 19% until 2026 according to WCCF Tech.

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Source: WCCF Tech

Valuation

You rarely find a hypergrowth technology stock that's undervalued. Nvidia's price-earnings ratio is lower versus its five-year average by 36.26%, and its price-sales ratio is trading at a normalized discount of 23.32%.

Furthermore, Nvidia's PEG ratio of 0.54 indicates that the market is inderestiming its growth. Thus, I think it's likely that Nvidia's stock will rebound in excess when the stock market retreats from bear market territory.

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Concluding thoughts

Although many investors are bearish on semiconductor stocks, Nvidia is an exception in my opinion. The company's stronghold in the graphics processing unit market allows it to take advantage of secular growth, and its developments in the central processing unit space mean that it could up the ante to increase its total market share.

Lastly, Nvidia is undervalued on a relative basis and looks oversold due to its stock trading below its normalized price multiples.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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